Understanding Life Insurance as a Millennial

Talk to one of our experienced advisors, today!

17 Minute read

Originally published: September 11, 2023

Life Insurance as a Millennial: Why You Shouldn't Procrastinate

Talk to one of our experienced advisors today!

17 Minute read
Originally published: September 11,  2023

Life Insurance as a Millennial: Why You Shouldn't Procrastinate

Welcome to our comprehensive guide on why millennials should be thinking about life insurance now. If you’re in your 20s or 30s, life insurance might seem like a distant concern, something for a future self to worry about. However, the choices you make today can significantly impact your financial security and peace of mind in the years to come.

In this blog, we’ll debunk common misconceptions, delve into why life insurance is relevant for millennials, and offer practical steps for selecting the right coverage. Whether you’re new to the concept or considering your options, this guide aims to equip you with the knowledge you need to make an informed decision.

Case Study: Emily’s Journey to Financial Security Through Life Insurance

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Background: Meet Emily, a 28-year-old marketing professional living in Toronto. Emily has been working for the past six years and has recently become engaged. She’s paying off her student loans, has a car loan, and is saving for a down payment on a house. She has often heard about life insurance but never really thought it applied to her life stage.

The Trigger: A close friend of Emily’s faced a family emergency, where the sudden loss of a young uncle left the family grappling with emotional and financial strain. This event served as a wake-up call, compelling Emily to reconsider her own financial preparedness.

Research and Misconceptions: Initially, Emily thought life insurance was too expensive and complicated. She was under the impression that it was mainly for older people or those with health issues. After reading up on the topic and speaking with financial advisors, Emily realized that not only was life insurance more affordable than she thought, but being young and healthy actually worked in her favor for securing lower premiums.

Choices and Coverage: Emily considered various types of life insurance, including term life and whole life insurance. Given her current financial obligations and future plans—including her upcoming marriage and hopes of starting a family—she opted for a 20-year term life insurance policy. This choice offered her sufficient coverage at an affordable rate, with the flexibility to convert it into whole life insurance later on if she desired.

Riders and Additional Benefits: Emily also chose to add a critical illness rider to her policy, which would provide a lump sum payout if she were diagnosed with a severe illness. This feature added peace of mind, given her family history of certain medical conditions.

Conclusion: Six months into her policy, Emily feels more secure knowing that her fiancé and future family will be financially protected in the event something happens to her. The premiums fit comfortably into her budget, and she has the flexibility to adapt her policy as her life circumstances change.

What Common Misconceptions Do Millennials Have About Life Insurance?

Addressing common misconceptions about life insurance as a millennial can be essential. Here are some common misunderstandings and how to counter them:

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“I’m Too Young to Need Life Insurance”

Misconception: It’s not necessary to get life insurance as a millennial. Many believe it’s a concern for later life or after significant life events like marriage or having children.

Reality: Being young and healthy actually makes life insurance premiums more affordable. Plus, no one can predict life’s uncertainties, and having a financial safety net can be advantageous for both the individual and their loved ones.

“Life Insurance is Too Expensive”

Misconception: The cost of life insurance is often cited as a barrier to entry, particularly for millennials who might be juggling student loans, rent, and other expenses.

Reality: There are affordable options, especially for young, healthy individuals. Term life insurance, for example, can be a cost-effective way to get substantial coverage.

“I Don’t Have Dependents, So Why Do I Need It?”

Misconception: Many millennials think that life insurance is only necessary if you have dependents who rely on your income.

Reality: Even if you’re single, your untimely death could create financial burdens for your family. For instance, funeral costs, remaining debts, or even the future educational needs of nieces and nephews could be covered by a life insurance policy.

“My Job Provides Enough Coverage”

Misconception: Some millennials who have life insurance as an employment benefit assume that this is sufficient.

Reality: Employer-provided life insurance often offers coverage that is a multiple of your annual salary, which might not be enough to cover all financial needs. Additionally, this coverage typically ends when you leave the job.

“I’m Healthy; I Don’t Need Life Insurance Now”

Misconception: Millennials often think that because they are young and healthy, they don’t need life insurance immediately.

Reality: Life insurance is cheaper and easier to qualify for when you are young and healthy. If you develop a medical condition later, your premiums could skyrocket, or you might be denied coverage altogether.

“Life Insurance is an Investment Strategy”

Misconception: Some millennials see life insurance as an investment vehicle for future financial growth.

Reality: While certain types of life insurance policies do have an investment component, they shouldn’t be viewed as a substitute for a well-diversified investment portfolio. The primary purpose of life insurance is to provide financial security in the event of untimely death.

“Online Will Services are Just as Good”

Misconception: The digital age has given rise to online will and estate planning services, and some millennials think this negates the need for life insurance.

Reality: While online will services may help with estate planning, they don’t offer the financial protections and guarantees that a life insurance policy can provide for an individual and their family.

Why is Life Insurance Relevant to Millennials?

It’s common to overlook the importance of life insurance as a millennial, many people in this generation believe it’s not relevant to their current stage of life. However, there are several compelling reasons why millennials should be considering life insurance now. Let’s delve into each aspect:

Financial Security: How Does Life Insurance Offer a Safety Net?

  1. Income Replacement: Millennials are at an age where they are generally starting to build their careers. For those who have dependents or plan to have them in the future, life insurance ensures that these dependents have a financial cushion if the primary earner passes away unexpectedly.
  2. Estate Planning: Millennials who have started accumulating assets like a home or investments can use life insurance as an estate planning tool to leave a financial legacy.
  3. Final Expenses: Regardless of age, final expenses such as funerals or medical bills can be burdensome for families. A life insurance payout can help cover these costs.
  4. Peace of Mind: Knowing that your loved ones will be financially secure in your absence can provide immense peace of mind. It’s a way of caring for your family, even when you can’t be there to do it.

Student Loans and Debt: What Happens to Debts Like Student Loans if Something Happens to You?

  1. Federal Student Loans: In Canada, Government Student Loans are usually forgiven if the borrower passes away, which means the debt won’t be passed on to family members. However, documentation such as a death certificate will be required to discharge the debt, which might involve administrative and emotional burdens at a difficult time. Having a life insurance policy could offer additional financial support for any end-of-life expenses or other debts, easing the burden on loved ones.
  2. Private Loans and Cosigners: Private student loans do not always offer the same forgiveness. If someone has co-signed your loan, they could be left responsible for the debt if you pass away. Life insurance can protect your co-signer from this financial burden.
  3. Credit Card Debt: Any personal debt that you have will be passed onto your estate. This could eat into any inheritance you wish to leave behind. A life insurance policy can help to cover these debts, ensuring that your assets go to your loved ones instead of creditors.
  4. Mortgages and Auto Loans: For millennials who have entered into homeownership or have significant auto loans, life insurance can ensure that these debts are covered, preventing the burden from falling on family members.

Costs Lower When Younger: Is Life Insurance Cheaper When You Are Young and Healthy?

  1. Lower Premiums: One of the biggest advantages of purchasing life insurance at a younger age is the cost. Life insurance is generally cheaper when you are young and healthy, as the risk to the insurer is lower.
  2. Lock-in Rates: Many life insurance policies offer the chance to lock in your rate for an extended period. This means you could pay the same lower rate for the next 20-30 years.
  3. Easier Approval: Being young and healthy also generally makes it easier to get approved for a life insurance policy. If you develop a medical condition later in life, you may find it more difficult or expensive to get coverage.
  4. Compound Value in Cash Value Policies: For those considering whole or universal life insurance, the earlier you start, the more time your policy has to accumulate a cash value, which can serve as an additional financial resource.

By acknowledging these aspects, millennials can make an informed decision about purchasing life insurance, understanding that it’s not just a product for older adults but a wise financial move for almost anyone who wants to plan for the uncertainties of life.

Types of Life Insurance to Consider

Term Life Insurance: The Affordable Choice

What It Is: Term life insurance provides coverage for a specific period, usually 10, 20, or 30 years. It only pays out if the insured person passes away within that term.

Why It Might Be Good for Millennials: This is generally the most cost-effective option, especially for young, healthy individuals. It provides substantial coverage for a lower premium, making it easier for millennials to afford while balancing other financial obligations like student loans, rent, or mortgage payments.

Whole Life Insurance: Lifetime Coverage with Investment Component

What It Is: Whole life insurance offers lifetime coverage with fixed premiums and includes a cash value component that can grow over time.

Benefits and Drawbacks: While more expensive, it serves as both a financial safety net and an investment opportunity. The cash value component can be borrowed against, providing financial flexibility. However, the higher premiums may be a financial strain for some millennials, especially those who are just starting out in their careers.

Universal Life Insurance: Flexibility and Growth

What It Is: Universal life insurance is another form of permanent life insurance with greater flexibility. You have the ability to adjust your premiums and death benefit, and the cash value component earns interest at a rate set by the insurer.

Is It a Good Fit for Millennials?: For those looking for a blend of flexibility and growth, universal life could be a good fit. It’s particularly suitable for millennials who want to start with lower coverage and have the option to increase it later, perhaps after having children or purchasing a home.

Practical Steps to Buying Life Insurance as a Millennial

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Understanding how to navigate the process of purchasing life insurance as a millennial can feel overwhelming. The first practical step is calculating how much coverage you need. Various online calculators can provide a ballpark figure by considering factors such as your income, debts, and the financial needs of your dependents. These tools are excellent starting points, but for a more nuanced approach, consult a financial advisor who can tailor a plan to your unique circumstances. 

The next step is shopping for quotes, and this has never been easier thanks to online comparison platforms. These sites aggregate quotes from multiple insurers, allowing you to evaluate options side-by-side. However, don’t rule out speaking to agents directly, especially for specialized policies that may not appear online. 

Finally, consider speaking to a financial advisor, even if you think you have a good handle on your needs. Advisors can provide insights into how a life insurance policy fits into your broader financial landscape, helping you optimize for tax benefits and long-term investment strategies.

By taking these practical steps, you’re well on your way to finding a life insurance policy that meets your needs and provides peace of mind.

How Do Lifestyle Choices Affect Life Insurance Premiums?

If you’re interested in life insurance as a millennial, you should know that lifestyle choices can significantly influence premiums. Insurers assess a variety of factors to determine your overall risk profile when determining insurance rates. Here are some key ways in which your lifestyle choices may impact your rates:

Smoking: Smoking is one of the most significant factors that can skyrocket your life insurance premiums. Insurers view smoking as a major health risk associated with a range of diseases, including cancer, heart disease, and respiratory issues. If you’re a smoker, you could pay up to two to three times more for the same policy compared to a non-smoker. It’s worth noting that some insurers may also classify occasional or social smoking under this higher rate category.

Sedentary Lifestyle: A sedentary lifestyle is increasingly recognized as a health risk, linked to conditions such as obesity, diabetes, and cardiovascular diseases. If your health metrics like weight, blood pressure, and cholesterol levels are outside the recommended ranges, you may face higher premiums. Some life insurance companies may offer incentive programs to encourage a healthier lifestyle, such as discounts for regularly exercising or meeting specific health milestones.

Alcohol Consumption: Heavy or excessive alcohol consumption can also lead to higher premiums due to the associated risks of liver disease, heart problems, and an increased likelihood of accidents. However, moderate drinking is generally not a significant concern for most insurers.

High-Risk Activities: If you regularly engage in high-risk activities like skydiving, scuba diving, or extreme sports, you might face higher premiums or even exclusions for death resulting from those activities. Some insurers may offer coverage but at an additional cost.

Diet and General Health: While not often directly asked about, your general health and diet can affect your medical exam results, another crucial factor that insurers use to determine your premiums. A balanced diet that helps maintain a healthy weight and good cholesterol levels can potentially lower your rates.

Is Group Life Insurance Through an Employer Enough?

Many people are fortunate enough to have access to group life insurance through their employer as part of their benefits package. While this can be a great perk, there are several reasons you might consider supplementing or even replacing it with a private policy. Here are some factors to consider if you’re interested in life insurance as a millennial:

  • Coverage Limitations: Group life insurance policies typically offer coverage that is a multiple of your annual salary, such as one or two times your yearly income. While this might sound substantial, it may not be adequate if you have significant financial obligations like a mortgage, student loans, or dependents who rely on your income. A private policy can provide the additional coverage you may need.
  • Lack of Personalization: Group policies are not tailored to individual needs. You generally cannot add riders or make adjustments based on your specific circumstances. A private policy allows for customization, such as adding a spouse or child rider, or even features like accelerated death benefits in cases of terminal illness.
  • Portability Concerns: Your group life insurance is usually tied to your employment. If you change jobs, get laid off, or retire, you might lose your coverage. While some policies offer the option to convert to a private plan, these are often more expensive than purchasing a separate policy when you’re young and healthy.
  • Cost Increases: Group life insurance might be less expensive initially, or even free as part of your employment package. However, rates can increase significantly as you age or if you leave your job and try to continue the policy. A private term life insurance policy can lock in rates for the term, providing cost certainty.
  • Health Conditions: If you’re young and healthy, you might get a better rate on a private policy than what your employer’s group insurance offers. If you develop health issues later in life, having a private policy in place could save you money in premiums and offer peace of mind in terms of guaranteed coverage.
  • Financial Independence: Having a private policy gives you control over your financial security, independent of your employment status or employer choices. As companies merge or downsize, benefits can change, but a private policy remains consistent as long as you pay the premiums.

Frequently Asked Questions (FAQs) about Life Insurance for Millennials

While it’s easy to think that life insurance is something for older or unhealthy individuals, being young and healthy actually works in your favor. The younger you are when you secure a policy, the lower your premiums will likely be. Also, life insurance isn’t just about you; it’s about financially protecting the people who depend on you in case something unexpected happens.

Yes, you can still get life insurance, but your premiums will likely be higher due to the increased health risks. Some insurers specialize in high-risk policies.

Employer-provided life insurance is a great benefit but is usually not sufficient for complete financial planning. It’s often limited to 1-2 times your annual salary, and you may lose it if you change jobs.

Find a solution for what you’re looking for 

Taking action on life insurance now can provide invaluable peace of mind and financial security for both you and your loved ones, making it a key aspect of sound financial planning for millennials. At Protect Your Wealth, we work with and compare policies and quotes from the best life insurance companies in Canada to ensure the best solution for you and your needs. We provide expert life insurance solutions, including no medical life insurance, critical illness insurance, term life insurance, and permanent life insurance to build the best package to give you the protection you need. 

Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Ontario, British Columbia, and Alberta including areas such as Brampton, Medicine Hat, and Abbotsford.

Talk to an advisor today.

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